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Spain’s Mondragon Cooperatives: An Economic Model?

The business world is basically divided into two camps: socialism and capitalism. In socialist economies, businesses are owned and controlled by the state, and in capitalist economies, shares in ownership are traded on the public market. In his summer Levitt Fellowship research, Shichen Xu ’12 will be exploring the economic middle ground between capitalism and socialism by studying the behavior of the Mondragon Cooperatives in the Basque region of Spain. Shichen’s research is titled “The Behavior of Employee-owned Firms: Evidence from the Mondragon Cooperatives” and will be conducted with Derek Jones, the Irma M. and Robert D. Morris Professor of Economics.

The Mondragon Cooperatives is an organization of all the firms in the Mondragon area; the firms are entirely employee-owned and have no shareholders. The cooperative represents an interesting phenomenon in economics because it is an economic model that adheres to a radically different set of rules than the capitalist model that dominates the global economy. If the Mondragon Cooperatives turns out to be a successful operation, it could spell a change in the way businesses are owned and operated in the United States.

The Mondragon Cooperatives is the brainchild of Jose M. Arizmendiarrieta, a Spanish priest who sought to revitalize the town of Mondragon in the 1940s in the aftermath of the Spanish Civil War. Arizmendiarrieta set up a technical college in 1943 as a way to educate engineers and managers, and in the 1950s worked to create cooperatives as a form of employment based on solidarity. Sixty years later, the number of firms has risen to more than 250 and, together, they employ more than 90,000 employees.

Shichen, a double major in economics and math, was originally interested in employee profit-sharing but found himself on the Mondragon track after speaking with Professor Jones, who is currently working on his own project centered on the Mondragon Cooperatives. According to Shichen, the research is a valuable experience because of the real-world problems that he is encountering in his data analysis. The theoretical problem sets that students normally encounter in economics textbooks generally have absolute answers, but performing real-life data analysis with missing variables and inconsistent variable definitions is great practice for the real world.

Shichen thinks it is too early to tell whether an employee-owned cooperative would be an effective business model in the United States, but he is skeptical. The Mondragan Cooperatives is successful largely because of its technical university, that not only trains the upper-level employees but also performs intricate studies of its own behavior. Any American corporation or set of corporations that was owned and managed entirely by its employees would be unlikely to have the organizational power of the Mondragon Cooperatives and would subsequently suffer in its capacity for growth and evolution.